Search engines are now selling advertisement spots through auctions. According to a survey from Stanford Graduate School of Business, bidders may actually end up paying more than they need to.


Search engines are now selling advertisement spots through auctions. According to a survey from Stanford Graduate School of Business, bidders may actually end up paying more than they need to if they follow the present system of auctioning.

But, says Michael Ostrovsky of the Stanford Graduate School of Business faculty, fact that the search engines are not using the original version of the auction for which William Vickrey won the Nobel Memorial Prize in 1996. The auction Vickrey designed has a remarkable property: The best strategy for the buyers is to bid precisely what they feel the item in question is worth to them.

The survey by Ostrovsky and his team, shows how the current mechanism could be adjusted to create an auction that better serves advertisers-although such an adjustment may not necessarily financially benefit search engines. “At the very least, we want to educate advertisers about the fact that in some sense they are being taken advantage of. Under the current mechanism, if they don’t think carefully about their bidding strategies, they can end up paying a lot more to the search engines than they need to,” Ostrovsky says. [Source]

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